Lawyer's Fund Prepares for Cahill Ethics Claims Fallout....CLICK HERE FOR FULL STORY

Sources reveal that the state's Lawyers' Fund for Client Protection is bracing for a tidal wave of claims against dishonest lawyers once the dust settles over the lack of disciplinary enforcement at the First Department, Disciplinary Committee....MORE...

The committee's Chief Counsel, Thomas J. Cahill, will be "retiring" in October and though his replacement has been cautioned to "keep the lid on any backlash," everyone at OCA is concerned that a majority of the complaints filed against attorneys in Manhattan and The Bronx under Cahill over the last 8+ years will have to be revisted, and which will surely result in an historic payout to victims.

This newest revelation prompts the need to revisit a good article by Joel Stashenko in the April 13, 2007 New York Law Journal.

Paying the Tab of Rogue NY Lawyers: Misconduct Fund Braces for Surge

By Joel Stashenko
New York Law Journal
April 13, 2007

ALBANY - Dishonest attorneys prompted the awarding of $7.1 million in 2006 from the Lawyers' Fund for Client Protection, which warned yesterday that the fund is likely to start seeing claims from the largest case of lawyer theft in its 25-year history.

Last year, the fund paid out $1 million less than the $8.1 million awarded in 2005. The average awarded annually over the last five years has been just over $6.3 million. (The report is available at www.nylawfund.org .)

See the 2006 Annual Report and highlights from the report .

Officials say the fund's finances are "very strong," but claims for reimbursement from clients defrauded by Andrew F. Capoccia and two attorneys working for him in his debt-reduction practice could total $5 million to $6 million alone, although the claims might be spread over more than one year, said Timothy J. O'Sullivan, executive director and counsel to the fund. Several hundred, and possibly thousands of clients, may seek help once federal authorities distribute restitution payments, he said in an interview yesterday.

"These catastrophic losses will challenge the New York Fund's ability to be able to continue to serve as a model for effective law client protection in our nation," the fund's 2006 report warned.

The precise amount that former clients of the Andrew F. Capoccia Law Centers of Albany and a successor firm, the Law Centers of Consumer Protection that moved to Bennington, Vt., will seek from the fund depends on how much in assets and restitution federal authorities can secure from Mr. Capoccia and two attorneys who worked for him, Howard Sinnott and Thomas Daly. Mr. O'Sullivan said federal authorities have seized about $4 million in assets so far in the case.

Mr. Capoccia is serving 15-2/3 years in prison for conspiracy, mail fraud, wire fraud and other charges for his role with the two firms, which federal authorities said diverted millions in client funds to accounts controlled by Mr. Capoccia's wife. Carol Capoccia faces up to 10 years in prison and a fine of up to $250,000 when she is sentenced April 27 in connection with guilty pleas in January to obstructing a federal grand jury investigation.

Mr. O'Sullivan said he anticipates that the claims arising from the Capoccia case will ultimately be higher than the costliest claims now on its books, those attributed to Jay W. Rosen. Mr. Rosen, a disbarred solo practitioner from Garden City, Long Island, has prompted $4.5 million in reimbursements from the fund, including $1.1 million from 12 awards made to his former clients by the client protection fund in 2006, Mr. O'Sullivan said.

Claims related to Mr. Rosen, who received a 2-to-6-year sentence for stealing real estate escrow funds from clients, were the largest for any single lawyer or firm in 2006, Mr. O'Sullivan said. They were also the largest in 2005, when the fund paid Mr. Rosen's former clients $2.4 million.

Clients represented by the late James S. Falletta of Queens accounted for 13 awards and $780,450 in payments from the fund last year, Mr. O'Sullivan said. Mr. Falletta was not suspected of defrauding clients when he was alive, but shortages were found in his escrow accounts following his death. Since 2005, the fund has paid out $972,000 in restitution to 21 of Mr. Falletta's former clients, Mr. O'Sullivan said.

Money for the fund is largely supplied by the assignment of $60 of the $350 biennial registration fee required of lawyers in New York state. Small amounts are also raised through restitution, judicial sanctions and donations occasionally made to the fund. The maximum award the fund can make is $300,000. The median client award in 2006 was $13,000.

The fund could not take more of the registration fee money if it becomes overwhelmed by Capoccia-related claims and other reimbursements, Mr. O'Sullivan said. But it has access to other money through the state Office of Court Administration if it becomes financially stressed.

Finances 'Very Strong'

The fund started this year with a balance of $7 million.

"Our finances are very strong," Mr. O'Sullivan said. "We are not crying poverty. We're not going broke."

But he said the office is in close contact with federal prosecutors in Albany and Vermont who are seeking to seize assets from the Capoccias and their firms.

"It is something we are trying to keep a close eye on and monitor," said Mr. O'Sullivan.

Eleanor Breitel Alter, chairwoman of the fund and a partner with Kasowitz, Benson, Torres & Friedman, said yesterday the Capoccia claims will "skew everything," but that the fund will meet its obligations.

"We have always been assured if we need other money that OCA is behind us," said Ms. Alter. "These people will be taken care of because that's our goal, that's our mission and that's what we are set up to do. And we will not go bankrupt."

Chief Administrative Judge Jonathan Lippman said OCA will provide the fund with the necessary money to meet the anticipated spike in claims.

Thefts From Escrow

While trying to anticipate a new challenge, the fund said an old problem - the theft of money kept in escrow by lawyers for downstate residential property purchases - continues to plague the system, though to a somewhat lesser degree in 2006 than in 2005.

Sixty-two of the 147 awards last year went to cover $2.9 million in real estate escrow losses. That was down from the 116 awards totaling $5.2 million the fund paid for escrow losses in 2005.

The escrow loses are almost exclusively a New York City and Long Island problem. Sellers' attorneys there typically hold down payments for residential properties, often as much as 10 percent of the purchase price. Upstate, down payments tend to be much smaller and brokers usually hold the money.

A New York State Bar Association committee chaired by Ira S. Goldenberg of White Plains has been working for more than one year on a study of the real estate escrow process and ways to better protect clients' money.

Ms. Alter said the theft of real estate escrow, which has accounted for 36 percent, or $44.8 million, of all payments from the fund since 1982, is "certainly not a decreasing trend."

"It is not easily addressed," she said yesterday. "Lawyers and clients, they get used to doing it one way and it's often very hard to convince people to put in some safeguards and to change the practice. Most lawyers are good and honest and the honest ones don't want to change and their clients don't want them to change because it becomes more complicated."

The Nassau and Suffolk county bar associations have also been studying real estate escrow practices.

In its annual report, the fund called for the adoption of a court rule requiring the transfer or protection of escrow funds held for clients in instances where attorneys have been suspected of or disbarred for misconduct.

Ms. Alter and Mr. O'Sullivan emphasized that only a miniscule number of lawyers are involved in dishonest acts that lead to awards. In 2006, 35 lawyers were responsible for the $7.1 million in reimbursements. There are about 229,000 lawyers in New York state.

Ms. Alter added, however, that every "blood-curdling" instance of lawyer dishonesty discredits the profession.

"It is something so far from what we are expected to do or how we are expected to behave," she said.

END OF NEW YORK LAW JOURNAL ARTICLE